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Comparative Advantage and the Welfare Impact of European Integration

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  • Andrei A. Levchenko
  • Jing Zhang

Abstract

This paper investigates the welfare gains from European trade integration, and the role of comparative advantage in determining the magnitude of those gains. We use a multisector Ricardian model implemented on 79 countries, and compare welfare in the 2000s to a counterfactual scenario in which East European countries are closed to trade. For West European countries, the mean welfare gain from trade integration with Eastern Europe is 0.16%, rang- ing from zero for Portugal to 0.4% for Austria. For East European countries, gains from trade are 9.23% at the mean, ranging from 2.85% for Russia to 20% for Estonia. For Eastern Europe, comparative advantage is a key determinant of the variation in the welfare gains: countries whose comparative advantage is most similar to Western Europe tend to gain less, while countries with technology most different from Western Europe gain the most.

Suggested Citation

  • Andrei A. Levchenko & Jing Zhang, 2012. "Comparative Advantage and the Welfare Impact of European Integration," NBER Working Papers 18061, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18061
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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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